Dear John: I read with interest your recent column about rising inflation. Unfortunately, either you or I misunderstand something.

Inflation is an increase in the supply of money relative to goods produced. If more dollars are chasing the same number of products, prices go up. Central banks pumping cash into the system could certainly be inflationary, but we need to look at where the money is going. Right now, it is being hoarded.

Banks are sucking up cash to mend their balance sheets. Hedge funds are going to cash. Investors and consumers are beefing up their cash holdings. This is classic hoarding of cash in a deflationary cycle.

The main bit of evidence you give for inflation is actually evidence of deflation. Higher real rates for long-term borrowing can either be caused by fear of inflation or the scarcity of money, an unwillingness to lend. Given the LIBOR and other indicators, I think we cannot dismiss deflation so easily. E.G., associate professor, San Diego

Dear Professor: No, I think we both understand what is going on. We are just looking at it in two different ways – you in the present, me toward the future.

In the classic case, central banks pump money into the system so that they can get lenders to lend. The hope is that borrowers will be back in business, getting all the money they want (and deserve) to expand their operations.

If this works, the deflation we are seeing in places like the housing market will eventually reverse and prices will go back up as people can get mortgages again and compete for properties. We are seeing some signs of deflation now. Inflation later.

But today’s economy is anything but classic. The bubbles in housing and stocks were caused by too much money. And the collapse of the bubbles were the result of fear and a lack of confidence, not to mention that ordinary folks who were encouraged to buy everything in sight (causing inflation) are plain tapped out.

No disrespect intended, but book-taught economics isn’t going to work this time around.

Why? Because the US already has an enormous amount of debt that keeps growing every day. And what the federal government just did – magically create more than a trillion dollars (and probably more) to bail out the banking system – is going to make the financial markets uneasy about inflation in the future.

Since Federal Reserve Chairman Ben Bernanke recently suggested just such an approach – run the printing presses to combat deflation – I think this is a legitimate area of concern.

In fact, Washington’s willingness, if not eagerness, to pump liquidity into both the monetary system and directly into banks is going to cause concern that people will eventually start buying goods that will be in shorter supply, especially as manufacturers cut back during the recession.

We are already seeing it. Even without including the cost of energy – and, really, why shouldn’t it be included – inflation picked up most of the early part of the year. And interest rates in the marketplace, the surest sign of nervousness on the part of investors, are rising despite the Federal Reserve’s desire to bring them down.

I’m not arguing that the bailouts were wrong. No, they were absolutely necessary. I’m saying that there will likely be the unintended consequences of higher inflation and rising interest rates – in the future.

Dear John: To think that I can read you for free on my iPhone is fantastic. But I would like your opinion on whether we are going to dodge a depression. B.J.

Dear B.J. On the subject of a depression: too close to call. On the subject of people being able to get my work for free on these new electronic gadgets: I’m already depressed about that.